Be Aware of New Restrictions on Credit Promotions to College Students

Article excerpt

It surprises a lot of people to learn that the Credit CARD Act doesn't apply just to credit cards. Some of the law's provisions apply to all consumer-purpose open-ended line of credit (LOC) products (including home equity lines of credit and personal LOCs, for instance). A few of these broader rules deal with marketing; one in particular restricts promotions involving college students. This provides a perfect example of the "law of unintended consequences."

Say you have a branch located near a college campus and you conduct a promotion to attract new line of credit accounts. The promotion involves giving a gift card to every person who applies for a line of credit. However, if some of those applicants happen to be college students, you would be in violation of Regulation Z (Truth in Lending). thanks to the Credit CARD Act.

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Only 'tangible' inducements are restricted

A new rule, scheduled to take effect Feb. 22, 2010, makes it a violation to offer an "inducement" to a college student to apply for a LOC product (whether it be a credit card. personal line of credit, HELOC, and so forth). The "inducement" must be some sort of tangible item, such as a T-shirt, magazine subscription, gift card and so forth; nonphysical items such as discounts, reward points, or promotional credit terms are not included.

If receiving the item is not contingent on applying for the line of credit (for example, it is given to anyone regardless of whether or not they apply), it also doesn't qualify as an inducement.

The rule restricts offering inducements on or near a college campus, or at an event sponsored by or related to a college. …